Don’t Force KY Schools to Drain Their Financial Reserves

The Jefferson County Public Schools finances are well managed.

Part of a well-managed budget is maintaining a reserve to cover expenses when needed. JCPS keeps an adequate reserve for an organization its size.

Governor Bevin’s budget, released yesterday, proposes that school districts be allowed to keep less than 2 percent of their funds in reserve, which is currently required. In his budget address last night, he also called on school districts – singling out the largest ones – to spend down their reserves to cover reductions in the state budget. JCPS maintains a healthy reserve, and reducing it would not meet its financial needs.

The JCPS fund balance – or reserve – averages at about 10 percent of the district’s budget – approximately $130 million each year over the last few years.

That’s a lot of money. But it doesn’t just sit there.

Because of the way revenue comes in, that fund is essential to keeping the district going when income is at its lowest. Here’s why:

JCPS is funded in large part by local revenue, mostly from property taxes. About 65 percent of the budget comes from local sources. Many smaller districts in the Commonwealth rely more on state funding because their property wealth isn’t as high. Equalizing state funding across districts was a key tenant of the Kentucky Education Reform Act of 1990.

Property taxes and other local taxes don’t start coming in until after November, five months after the fiscal year has begun.

The reserve money helps pay the bills during that time. Sometimes, that 10 percent reserve is more like 3 percent – just $30 million for a $1.3 billion dollar organization.

Requiring that the fund balance be spent down doesn’t take into account how revenue and expenditures work in our school system.

The district’s long-time Chief Financial Officer, Cordelia Hardin, has defended the fund multiple times in recent years. She calmly explains that it is good business practice to maintain this fund.

The Government Finance Officers Association (GFOA) recommends a level of “no less than two months of regular general fund operating revenues.” JCPS payroll alone adds up to $38 million every two weeks – about $152 million every two months. That, coupled with other regular expenses, indicates JCPS is on target in insisting it maintain a healthy reserve.

And, by the way, JCPS has received the GFOA Certificate of Achievement for Fiscal Reporting multiple years in a row.

When I was on the Jefferson County Board of Education, maintaining this reserve made sense to me, and I trusted the finance professionals. I commend the current Board of Education for supporting a sound budget. We should never weaken the financial position of the institution that educates 100,000 children every day.

 

Posted in Uncategorized | Leave a comment